The Pros and Cons of Investing in Small Towns and Rural Areas

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City folk are often attracted to the country life.  In many parts of the United States “the country” can be less than an hour’s drive away.  I have seen more than one real estate investor (myself included) attracted to rural areas and small towns, but like anything there are pros and cons to investing in rural areas and small towns.

Let me list some of the good points first.

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Benefits of Investing in Small Towns and Rural Areas

  • Properties can be significantly cheaper than in larger, metro areas. This can mean greater cash flow or return on investment and is what makes these areas attractive.
  • There is often less competition. You may be the only one bidding on the courthouse steps at that foreclosure auction or on that HUD home.
  • There is often less regulation. There may not be any zoning laws or building permits to contend with.
  • That small town atmosphere can be pretty tempting. “Green Acres is the place to be!”

Sounds great right?  However, small towns and rural areas are not as bucolic as they first may seem, for instance…

The Downside of Investing in Small Towns and Rural Areas

  • These can be much tougher markets.  Properties can take much longer to rent out or sell since your market is much smaller.
  • Lack of economic opportunity can restrict your pool of qualified renters or buyers.  Plus if your area is dependent on one industry, say farming or a meat packing plant, things can go south pretty quickly with a drought or plant closure.
  • That lack of regulation (zoning and building codes) comes with a warning: caveat emptor! And, that junkyard that popped up next door — you are just going to have to deal with it.
  • There is a general lack of services in rural areas and small towns.  Police and fire services may be sparse or non-existent.  If you have a fire, they will often call the farmers out the fields that arrive just in time to save your chimney.  These conditions can make insurance payments significantly higher.
  • Wells and septic tanks often take the place of water and sewer services.  These can work well but they also come with their own issues.  You had better learn what field lines are and where not to plant a garden or put the pool.
  • You will be doing a lot of driving to show, check on and maintain your properties.  Do you really want to drive an hour each way to show your property?
  • That small town atmosphere, while charming, can also be stifling.  You lose a lot of anonymity in a small town and often times everyone knows everyone else’s business.  Plus things (like your renovations) tend to move at a much slower pace.

Small towns and rural areas can be a good place for investment.  I have in the past invested in and worked in rural areas.  However, just like with any endeavor, you need to really know your market and what you are getting into.  Don’t just look at the great prices because the grass is not always greener out in the country.

Photo: ellenm1

About Author

Kevin Perk

Kevin Perk is co-founder of Kevron Properties, LLC with his wife Terron and has been involved in real estate investing for 10 years. Kevin invests in and manages rental properties in Memphis, TN and is a past president and vice-president of the local REIA group, the Memphis Investors Group.

13 Comments

  1. Kevin,
    The information you have provided has been most beneficial especially when I have been contemplating investing in smaller areas. You have provided some really great points about how smaller areas can be stifling. I will definitely research the area prior to deciding on if I would like to buy from a smaller area. Thank you for the information.

  2. Don’t forget the exit strategy as a con. It will most likely take much, much longer to sell and the appreciation may be somewhat flat. This reinforces the fact that you should always buy for cashflow.

    • Kevin Perk

      Good tip, thanks Steve. Many times rural areas are also declining in population, so you might want to check out some demographic info before you invest. A declining population is not good for cash flow or appreciation..

  3. Kevin, you pretty well discribe it to the letter. I bought a bunch of nice homes in a small town, equity is great as is the cash flow. As Steve White pointed out, it does take a looong time to sell. I’m been retired for many years and living off the income, oh well. If it weren’t for the wife, I’d be singing the Green Acres song everyday if we were to move there:) I get from 1-3% growth there, other ones I own, 3-8%. The three rules still apply-Location, location and most importantly, location.

    • Kevin Perk

      You are correct Jim, location, location, location is the key. Some rural areas may be in the “path of progress” for example and may appreciate greatly as ex-urban growth approaches. Other areas may be declining in population, as I mentioned in response to Steve’s post. Plus small towns are often just like big cities but on a smaller scale. There are nice parts of town and not so nice parts of town. Knowledge about the area you are going to invest in will help you pick the best locations.

  4. @Kevin,

    True, and the smallest town I would invest in personally is a minimum 20,000, which is still technically a small town. Even then it would have to be a sweet deal.

    It does raise a theory I have of the future of small towns, however. I feel we’re going to see a bit of a reversal trend in 5-10 years as young professionals struggling to find work now enter the online workforce. They’ll begin to start families and will realize that $450,000 in the city and suburbs will buy you an entire street in a small town. Since they can work from anywhere, they’ll move their families to smaller communities with nice yards, great air and friendly neighbors. This generation values personal time and if they can find a way to make a good living working 20 hours a week in an area with much lower living costs they’ll make the move.

    I’m not going to put money on the theory though, because I could be off by 10 years.

    • Kevin Perk

      Possibly, but I find many young professional like the buzz of city life. The interaction with other young professionals is something they crave. Plus, we have nice yards and friendly neighbors here in the heart of the city. It all depends on what you want. Thankfully we have any options in this country to choose from. Thanks for the comments.

      • True, I was thinking more around 28-34 when they start having families and the buzz of streetcars, the lack of parking and the smog begin to loose their lusture.

  5. My wife grew up in a small town and absolutely loved it! Her father worked from home and occasionally had to fly out for corporate meetings out of state. The family had a close relationship simply because of distance from neighbors. Majority of her “growing up” memories are with her siblings. Where as I grew up in the city, most of my memories are with friends, and still plenty with family. It’s a great atmosphere in small towns as well (I’ve spent a few number of months in several different small towns). My advice: Don’t expect any great fast paced moving life, most of the people I personally met in these towns live in the same house they grew up in or just down the street. In some ways a part of my heart leans toward the calm slow-paced life that a small town has to offer. My dream is to keep a steady income, and spend my Saturdays out on the tractor in the garden.

    • Kevin Perk

      Thanks for reading and for the comment Cordell. Small towns hold an attraction to people for many of the reasons you describe. And yes, the pace is definitely slower. That must be some garden you are planning if you are going to need a tractor. 🙂 Good luck. I hope you realize your dream.

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